From: lucas.cloveralcolea@monash.edu <lucas.cloveralcolea@monash.edu>
Date: Tuesday, 25 November 2025 at 03:25
To: James Lee <james.lee@kcl.ac.uk>, 'obligations' <obligations@uwo.ca>
Subject: RE: Fiduciaries, Remedies and the Supreme Court (Encore, Encore)

It’s really quite an interesting case! I suppose it will now have to be read alongside AIB.  It seems to suggest, at least in parts, that the bringing together of equitable compensation and common law damages might have stopped. Admittedly the Court does say “It is unnecessary to decide why the common law and equity appear to start from opposite ends of a possible spectrum of time for assessing loss or value (between breach and trial dates), when both are pursuing broadly the same compensatory objective. It may be that the explanation given by Street J in In re Dawson, adopted in Libertarian by Ribeiro PJ, namely that unlike the common law, equity is not concerned with issues of remoteness, foreseeability and mitigation, comes nearest to a satisfying explanation. But a firm conclusion about the reasons for that divergence of approach between common law and equity is for another day.” (para 97)

However, throughout it does seem to emphasise what we could call the policy or purpose of fiduciary law, i.e., that “A fiduciary, as steward of his principals property or affairs, to whom he owes a duty of loyalty, has the responsibility to account for and explain what has happened in relation to them” (111) and sets out some of the differences, for example as regards intervening causes, changes in value and so on. Perhaps most interesting in that regard is para 95, which explains that where property “If events occur diminishing the value of the property which are extraneous to the relationship between beneficiary and trustee (or between company and director) and which would have had the same effect if the property had remained in the hands of the trust fund or the company, there is no sound justification for holding the trustee or director responsible for that loss of value. On the other hand, where the fall in value of the property is caused by misconduct by the trustee or director there may be justification for holding the trustee or fiduciary responsible for it.”

The example given by the Court, where a trustee claims beneficial ownership of a painting hanging in a gallery, but this causes no loss as the gallery burns down and thus the loss would have been suffered in any event, versus a situation where the trustee takes the painting home, breaching their duties, and is destroyed by fire, so the trustee is liable, has, in my mind, obvious parallels with the discussion of Lord Eldon in Caffrey v Darby where he discusses the case of property destroyed by lightning or fire where it was ‘got in’ by the trustees due to their negligence. The facts of Al Jaber themselves also give a good example, in that an argument seemed to be run that the misappropriated shares would have been worthless even if the fiduciary had complied with their duties, because they would have, in any event, made them worthless due to a later breach. As the Court noted this, in effect, would have amounted to an argument that “if he had not destroyed the value to the Company of the 891K shares in 2016 he would in any event have succeeded in destroying that value a year later by the 2017 Asset and Liability Transfer, or at least have reaped the same benefit to himself, as the ultimate beneficial owner of the MBI Group. Using the analogy of the painting held on trust, he would actually have lit the fire which destroyed it.” (para 122)

I think this leans towards an equitable sort of intervening causes doctrine, or at least differs from the common law one, but I can’t really say anymore about that.

A final point is that the Court, perhaps unsurprisingly, again defends the Target and AIB but for approach, referring to 19^th century cases, and noting that “Neither In re Brogden nor Carruthers were cases about a misappropriation of trust money by the defendant trustee. Rather, they were about breaches of trust consisting of failure to take steps to prevent foreseeable loss to the trust fund. But they both imposed a burden on the defendant, in effect to disprove an apparent connection between breach and loss, in the context of a ‘but for’ and therefore counterfactual analysis. In short, they required the defendant to prove that, even if there had been no breach of trust, the same loss would have been incurred. It is noteworthy that the courts in both those cases acknowledged that a ‘but for’ counterfactual analysis was an appropriate way of assessing loss, a century before Target and AIB. Thus it cannot be said that the principle as to the burden of proof which they laid down was overtaken by the requirement to carry out a counterfactual analysis in either of those much more recent cases.” (para 105)

Of course, it might be fair to say that it leans towards an equity focused, or Lord Reed approach, as opposed to a common law focused, or Lord Toulson approach, but I appreciate that’s probably highly contestable.

Please no more fiduciary/equity cases before next year, as I’m not sure we can keep up ☹

All the best,

Lucas

Lucas Clover Alcolea

Lecturer

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E: lucas.cloveralcolea@monash.edu   
W: https://research.monash.edu/en/persons/lucas-clover-alcolea

https://www.linkedin.com/in/lcloveralcolea/

Dear Colleagues,

Fans of the UK Supreme Court’s current Fiduciary Era will be interested to see yet another decision this year on liabilities in equity, in Mitchell v Al Jaber [2025] UKSC 43 https://www.supremecourt.uk/cases/judgments/uksc-2024-0075. There is material from a range of jurisdictions considered by the Justices. The Court upholds the finding that the defendant Sheikh, who had intermeddled with the property of the company despite not having authority to enter into transactions on its behalf, was an ad hoc fiduciary. The treatment of this point is of note because it follows so soon after Hopcraft, the car finance decision from earlier this year, which seemed to narrow the scope for ad hoc fiduciary relationships. The Court also concludes that it is possible for the act that generates the duty in such cases also to amount to a breach of the duty. There is then lengthy discussion about how to calculate loss in such cases, with the date of assessment, counterfactuals, chains of causation and intervening & supervening causes all examined. The Sheikh’s argument that the loss to the company was zero (for various reasons) was rejected by the Supreme Court.

Best wishes,

James

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James Lee

Professor of English Law 

The Dickson Poon School of Law

Somerset House East Wing

King's College London

Strand

London WC2R 2LS

E-mail: james.lee@kcl.ac.uk 

My Inaugural Lecture, ‘Pure Imagination: Stories, Institutions and Law Reform’, will be held at 6pm on Monday 17th November, at King’s College London. https://www.kcl.ac.uk/events/inaugural-lecture-with-professor-james-lee

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